Tuesday 12 May 2009 16.02 EDT
First published on Tuesday 12 May 2009 16.02 EDT

The world's largest offshore wind farm is to be built in the Thames estuary after the partners behind the scheme said they had agreed an initial €2.2bn (£2bn) investment.

The London Array will be built 12 miles off the Kent and Essex coasts, with the first phase using 175 turbines, each the height of the tower housing Big Ben. Once complete, it could generate enough electricity to power a quarter of the homes in Greater London.

The prime minister, Gordon Brown, described the London Array as a "flagship project" in the drive to cut carbon emissions by 80% by 2050. Environmental groups also broadly welcomed the project although they warned that much more needs to be done to encourage the growth of the offshore wind industry. Nick Rau at Friends of the Earth said the decision to go ahead with the project showed that renewables were becoming "major league".

The future of London Array, which has been four years in the planning, had been in doubt since Royal Dutch Shell pulled out of the scheme last year. Falling energy prices and the credit crunch added to the uncertainty.

But in a joint statement, German energy firm E.ON and its partners, Danish company Dong Energy and Abu Dhabi firm Masdar, said they had decided to press ahead with the scheme.

They said a recent government proposal to increase support for offshore wind power through the renewables obligations certificates scheme had convinced them that the scheme was now "financially viable".

Work on the wind farm is due to begin onshore in the summer, with offshore work scheduled to begin in early 2011. The farm will be built on a 90-square-mile site in two phases. The consortium hopes the first phase, which will generate 630MW, will be completed by 2012, with the second phase taking the generating capacity up to 1GW and preventing the emission of 1.9m tonnes of CO2 every year.

The scheme is part of the second round of offshore wind farms that have been given consent, which together with the first phase would generate 8GW of power when they are fully built, although many of the projects have stalled because of the economic climate. Bids are in for a third round of nine sites off the coast of Britain, which would add an additional 25GW. If all the proposed wind farms were built, they would together generate 33GW, meeting 25% of the electricity demand in Britain.

The decision could help to rebuild confidence in the renewables sector, which has been undermined by retreats from BP and Shell in Britain and the closure of the only turbine plant in England.

John Sauven, executive director at Greenpeace, described the London Array as "cutting edge" and said it "should be the start of a major expansion of offshore wind to help power Britain".

However, environmental campaigners are still urging the government to do more, including the development of a manufacturing base to build the turbines, components and installation vessels needed. They are also pressing for an offshore grid that would make it easier to plug wind-generated power into the National Grid.

Dr Spencer Fitz-Gibbon, a spokesman for the Green Party, said: "We very strongly welcome this development in itself but the government is not doing enough. Neither should this deflect from the fact that the government is working from the wrong targets. The most recent science tells us that we need a 90% reduction in emissions by 2030."